Cumulative Tax Calculation

Cumulative tax calculation is the default mode of PAYE. Each pay period, the payroll software adds your year-to-date taxable pay to the period's pay, applies the cumulative personal allowance (1/12 of £12,570 for monthly paid, 1/52 for weekly), works out the cumulative tax due, and subtracts the tax already paid in earlier periods. The difference — positive or negative — is the tax for the current period.

This self-correcting behaviour is why one-off bonuses or unpaid leave tend not to over-tax you for the whole year, even though the headline rate in the bonus month may look high. By the next month, the system has rebalanced. Cumulative codes are denoted by codes without a W1, M1 or X suffix, e.g. plain '1257L'.

Worked example: Yuki is on tax code 1257L cumulative and earns £3,500 a month. In month 4 (July) she receives a £6,000 bonus. Her cumulative pay to date is 4 × £3,500 + £6,000 = £20,000. Cumulative personal allowance is 4/12 × £12,570 = £4,190. Cumulative taxable pay is £15,810. Cumulative tax due is £15,810 × 20% = £3,162. Tax already paid in months 1–3 was 3 × ((£3,500 − £1,047.50) × 20%) = £1,471.50. July's tax bill is £3,162 − £1,471.50 = £1,690.50, much higher than a normal month — but because the tax engine resumes its smoothing in August, the year-end total is exactly what it should be: 20% of £36,000 + 40% of (£42,000 + £6,000 − £50,270 cap-up if applicable) etc., with no over- or under-payment. This is what makes cumulative PAYE the gold standard.